Nationalist Critique of Colonial Economy

The early intellectuals of the first half of the nineteenth century supported British rule under the impression that it would modernise the country based on latest technology and capitalist economic organisation. After the 1860s, disillusionment started to set in among the politically conscious and they began to probe into the reality of British rule in India.

The foremost among these economic analysts was Dadabhai Naoroji, the ‘Grand Old Man of India’, who after a brilliant analysis of the colonial economy put forward the theory of economic drain in Poverty and UnBritish Rule in India. Other economic analysts included Justice Mahadeo Govind Ranade, Romesh Chandra Dutt (The Economic History

Economic Drain

The term ‘economic drain’ refers to a portion of national product of India which was not available for consumption of its peoples, but was being drained away to Britain for political reasons and India was not getting adequate economic or material returns for it. The drain theory was put forward by Dadabhai Naoroji in his book Poverty and UnBritish Rule in India. The major components of this drain were salaries and pensions of civil and military officials, interests on loans taken by the Indian Government from abroad, profits on foreign investment in India, stores purchased in Britain for civil and military departments, payments to be made for shipping, banking and insurance services which stunted the growth of Indian enterprise in these services.

The drain of wealth checked and retarded capital formation in India while the same portion of wealth accelerated the growth of British economy. The surplus from British economy re-entered India as finance capital, further draining India of its wealth. This had immense effect on income and employment potential within India.

of India), Gopal Krishna Gokhale, G. Subramaniya Iyer and Prithwishchandra Ray. The essence of nineteenth century colonialism, they said, lay in the transformation of India into a supplier of foodstuffs and raw-materials to the metropolis, a market for metropolitan manufacturers and a field for investment of British capital. These early nationalist analysts organised intellectual agitations and advocated a complete severance of India’s economic subservience to Britain and the development of an independent economy based on modern industries.

British Policies Making India Poor

The basic assertion of these early intellectuals was that India was poor and growing poorer due to British imperialism, and since the causes of India’s economic backwardness were man-made, they were explainable and removable. The problem of poverty was seen as a problem of raising productive capacity and energy of the people or as a problem of national development, thus making poverty a national issue. This helped in rallying all sections of society around common economic issues. Also, development was equated with industrialisation. This industrialisation was to be based on Indian and not foreign capital because, according to the early nationalists, foreign capital replaced and suppressed instead of augmenting and encouraging Indian capital. This suppression caused economic drain, further strengthening British hold over India. The political consequences of foreign capital investments were equally harmful as they caused political subjugation and created vested interests which sought security for investors, thus perpetuating the foreign rule.